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How Does Day Trading Align with Islamic Jurisprudence: A Critical Examination.
In almost all contemporary Islamic Finance structures and products, a fair amount of attention is given to how assets are being possessed, transferred and how the associated risks are being allocated. Similarly, retail investments are critically examined and screened to understand whether an investor has possession of the underlying asset.
The condition and requirement of possession has come directly from the Prophet Muhammad (PBUH).
Let us see the below Hadith: –
Hakeem ibn Hizaam said: I came to the Messenger of God (PBUH) and said: A man may come to me wanting to buy something that I do not possess; should I buy it for him from the marketplace then sell it to him? He said: “Do not sell that which you do not possess.” (Tirmidhi)
Ibn ‘Abbas narrates that the Messenger of God (PBUH) forbade selling foodstuff until one has received it in full. (Bukhari and Muslim)
One point that is quite well-established in the Islamic jurisprudence is the possession of each thing traditionally differs according to the nature of that thing. The common practice as far as shares are concerned is that registration at the stock-exchange at the time of purchase is not considered as possession. Rather it is said that delivery shall take place in T+1 or T+2 days, means to give possession, hence, as per common practice, delivery is considered as equal to possession.
The practice of short sale is quite common at the stock exchange. Now obviously, if one person is short selling, that means if he doesn’t own the shares and yet sells them, which is, from the Shari’ah point of view, invalid from the beginning, it moreover shows that those gentlemen who state that the rights and liabilities related to the shares are transferred to the buyer right at the time of purchase, or that the risk is transferred to the buyer, do not make that statement, because they make similar statement also regarding short-sales, whereas in this case the question of transferring risk does not arise at all in the Shari’ah.
If the seller does not even own the shares, then how could he possibly turn them over to the buyer? And how could the risk be transferred?
Share is simply the smallest unit of ownership in the company and we purchase shares to become owners of the part in the company. Now if you are the owner of the company, it means, if the company earns profits, you must have a part in that profits & at the same time, if the company makes any losses, you must have a part in it.
So, just think if a company distributes dividends on some date, for example today, what do you think, will you get the dividend if you purchase the shares today or even yesterday, the answer is, NO.
The company provides dividends only to those shareholders that have the shares in their Demat account, it means companies consider owners only to those people who have the shares in their Demat account. Islamic scholars consider this as a transfer of risk and it happens only when shares are credited to the Demat account.
Hence, we conclude that, Day Trading or Intraday is not Permitted in Islam.
Allah Knows Best
The condition and requirement of possession has come directly from the Prophet Muhammad (PBUH).
Let us see the below Hadith: –
Hakeem ibn Hizaam said: I came to the Messenger of God (PBUH) and said: A man may come to me wanting to buy something that I do not possess; should I buy it for him from the marketplace then sell it to him? He said: “Do not sell that which you do not possess.” (Tirmidhi)
Ibn ‘Abbas narrates that the Messenger of God (PBUH) forbade selling foodstuff until one has received it in full. (Bukhari and Muslim)
One point that is quite well-established in the Islamic jurisprudence is the possession of each thing traditionally differs according to the nature of that thing. The common practice as far as shares are concerned is that registration at the stock-exchange at the time of purchase is not considered as possession. Rather it is said that delivery shall take place in T+1 or T+2 days, means to give possession, hence, as per common practice, delivery is considered as equal to possession.
The practice of short sale is quite common at the stock exchange. Now obviously, if one person is short selling, that means if he doesn’t own the shares and yet sells them, which is, from the Shari’ah point of view, invalid from the beginning, it moreover shows that those gentlemen who state that the rights and liabilities related to the shares are transferred to the buyer right at the time of purchase, or that the risk is transferred to the buyer, do not make that statement, because they make similar statement also regarding short-sales, whereas in this case the question of transferring risk does not arise at all in the Shari’ah.
If the seller does not even own the shares, then how could he possibly turn them over to the buyer? And how could the risk be transferred?
Share is simply the smallest unit of ownership in the company and we purchase shares to become owners of the part in the company. Now if you are the owner of the company, it means, if the company earns profits, you must have a part in that profits & at the same time, if the company makes any losses, you must have a part in it.
So, just think if a company distributes dividends on some date, for example today, what do you think, will you get the dividend if you purchase the shares today or even yesterday, the answer is, NO.
The company provides dividends only to those shareholders that have the shares in their Demat account, it means companies consider owners only to those people who have the shares in their Demat account. Islamic scholars consider this as a transfer of risk and it happens only when shares are credited to the Demat account.
Hence, we conclude that, Day Trading or Intraday is not Permitted in Islam.
Allah Knows Best
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if intend to purchase some stock with enough available amount for payment and purchased and if during the day if stock rises could i squre up the same to gain amount and avoid delivery of the same.
not permissible.
please publish bloc regarding important aspects to be noted in any annual report based on sharia laws so it will helpful to investors for their invested money to particular company
Triding
Me sikhna chahta hu
I want to know that if isell some stock and after selling the price of stock is fallen can I purchase same stock in same day.
According to you, “The company provides dividends only to those shareholders that have the shares in their Demat account, it means companies consider owners only to those people who have the shares in their Demat account.”, So if today I buy a share of XYZ company. The shares will be transferred to my demat after T+2 and between this, the dividend will be given to the seller. Let’s assume I buy a share at 10AM and at 11AM the company is totally lost due to an earthquake. Who will bear the loss? I or the seller who sold the share but is still eligible for the dividend? After buying a share, the risk is transferred top whom? To me or to the seller?